Structural challenges to affect India's economic growth: IMF

WASHINGTON: Blaming supply bottlenecks and policy uncertainty for lagging investments, IMF on Tuesday warned that "significant structural challenges" would affect India but still projected a higher 5.7 per cent growth this year and 6.2 per cent next year.

Releasing its Global Economic Outlook report, the International Monetary Fund said that growth in India would rise to 5.7 per cent in 2013, from 4 per cent last year, as a result of "improved external demand and recently implemented pro-growth measures". For 2014, it has projected GDP growth of 6.2 per cent.

Global prospects have improved again but the road to recovery in the advanced economies will remain bumpy, it said.

It noted that what until now was a two-speed recovery, strong in emerging market and developing economies but weaker in advanced economies, is becoming a three-speed recovery.

Emerging market and developing economies are still going strong, but in advanced economies, there appears to be a growing bifurcation between the United States on one hand and the euro area on the other, the WEO report said.

"Significant structural challenges will likely lower potential output over the medium term and also keep inflation elevated by regional standards (in India)," it said.

IMF also put the blame on "supply factors, such as infrastructure or labour market bottlenecks, and domestic policy factors, such as policy uncertainty and regulatory obstacles" for the recent stalling of investments in countries like India, Brazil and Russia.

It also projected a modest improvement in global economic growth rate to 3.3 per cent in 2013, from 3.2 per cent last year on the back of improving trends in emerging markets.

As per the report, growth has already returned to a healthy pace in China, while "external demand, solid consumption, a better monsoon season, and policy improvements are expected to lift activity in India".

As per IMF projections, inflation pressure is projected to remain overall contained in emerging market and developing economies, supported by the recent slowdown and lower food and energy prices.

But inflationary pressure may remain fairly high in some economies, including India's, due to high food prices.

The IMF also flagged off concerns about large fiscal deficits in India, while stressing on an urgent need for fiscal consolidation in various parts of the world. It also listed India among the countries where "structural impediments to growth are already present".

IMF said that policymakers "must carefully consider the risks of policies falling behind the curve and becoming pro-cyclical".

It said the concern is that too much of the recent downturn is attributed to cyclical rather than structural factors.

WEO estimates suggest that the recent downward revision of medium-term prospects in emerging market and developing economies does not reflect a reassessment of medium-term prospects in China alone.

It said growth in the US is forecast to be 1.9 per cent in 2013 and 3 per cent in 2014. In contrast, growth in the euro area is forecast to be -0.3 per cent in 2013 and 1.1 per cent in 2014.

"The growth figure for the United States for 2013 may not seem very high, and indeed it is insufficient to make a large dent in the still-high unemployment rate," the report said.

"But it will be achieved in the face of a very strong, indeed overly strong, fiscal consolidation of about 1.8 percent of GDP.